Mercent has an eye out for marketing

Startup boosts revenue for Web retailers by putting goods in front of the right shoppers

By ANDREA JAMES, P-I REPORTER

Published 10:00 pm, Sunday, November 2, 2008

Photo: Scott Eklund/Seattle Post-Intelligencer

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In tough economic times, Eric Best, CEO of Seattle startup Mercent, is counting on growth. The company helps online retailers get more revenue out of their Internet ads.

In tough economic times, Eric Best, CEO of Seattle startup Mercent, is counting on growth. The company helps online retailers get more revenue out of their Internet ads.

Photo: Scott Eklund/Seattle Post-Intelligencer

Mercent has an eye out for marketing

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A new flame grill for the patio, baby shoes for the nephew, a bronze throw pillow for the den -- all researchable in seconds online. Internet-savvy shopping has gone mainstream with the help of comparison-shopping engines, social networking sites and plain old Google.

As consumers hunt for the best deals, retail businesses are hunting for ways to get noticed.

Mercent Chief Executive Eric Best says his Seattle tech startup is poised to capitalize on the changing way that Americans shop. The Belltown firm helps retail businesses market goods online.

"We're growing like crazy," said Best, a former manager at Amazon.com. "I would say that 2008, hands down, qualitatively, quantitatively, however you want to measure it, it's been our most successful year."

Nearly 100 retail clients, including REI, Guess, Nautilus and 1-800-Flowers, have hired Mercent to put their wares in front of shopper eyeballs. Founded in 2005, Mercent's revenue has doubled in the past year as it added 50 new customers.

About a third of Mercent's employees boast Amazon.com as a former employer.

For every opportunity the Internet presents to sell a product, it offers the same to competitors. The retailer that focuses advertising dollars on where its products sell best has an advantage. Mercent places individual products by using data algorithms.

"You can go out and you can spend thousands of dollars and thousands of hours bidding for placement and making sure you're live on these channels, and at the end of the day, if your competitor comes in and they have a better offer ... you lose the sale," Best said. "We have a dedicated channel partnership team that basically tracks how those channels are performing."

Mercent collects 3 percent to 5 percent of each transaction it generates.

It's a jungle out there

Consumers benefit from the intense competition of a bigger marketplace. Enormous shopping engine Shopzilla.com has an index of products from 92,000 stores. The brick-and-mortar equivalent, The Mall of America in Minnesota, has 520 stores. And Shopzilla is just one of more than 70 online shopping sites.

Shopping engines and online marketplaces can make or break a business, said Brian Smith, chief executive of SingleFeed and a shopping engine analyst.

"The shopping engines and marketplaces have become critical to a merchant's growth over the last couple years," Smith said. "Just because you put up a Web site, it doesn't mean that people will come to the site."

Shopping engines rely on merchants to provide product catalogs, though some shopping engines crawl the Web. Also, each shopping engine has unique specifications for how it wants product catalogs delivered, Smith said.

Managing them can be overwhelming.

By 2006, Recreational Equipment Inc.'s online catalog was in so many places that the company could not keep track of all its referrals. Seattle-based REI hired Mercent for help.

About 20 percent of REI's business comes from online sales, said Natalie Crain, REI's manager of Internet marketing. Technology has made it easier for the company to track sales of specific products. Different products are popular on varying shopping engines.

"Some shopping engines may do better in apparel versus hard goods like a tent or a backpack," Crain said.

"Every retailer is feeling what's going on in our country right now," Crain said. "REI is not an exception. I definitely think that online is outpacing the retail stores as far as being resilient in what's going on today."

Bright spot

Online retail sales this holiday season are expected to grow 12 percent to $44 billion, according to Forrester Research Inc. That's the slowest growth rate to date, and shows that even Web buyers are subject to economic headwinds.

Last month, industry leader Amazon.com lowered its expected revenue for the fourth quarter.

Even Mercent's Best, who is optimistic about online retail's prospects relative to brick-and-mortar stores, decided to lay off six people in October. "We're looking at the market and we're looking at everything that's happening. I know how much cash we have in the bank," he said. "Even in a worst-case scenario, from an economic standpoint, we still have good footing."

The six cuts were across the 50-person company -- administrative positions and a few others, Best said.

Despite the slowdown, online shopping is supposed to be a bright spot in an otherwise bleak retail industry, said Cliff Hopkins, PayPal's senior director of U.S. marketing.

Consumers may not buy extravagant gifts; they will be buying and hunting for deals online, Hopkins said. PayPal has 65 million active accounts worldwide.

"Online has been growing 20 percent year over year," he said. "A 12 percent lift year over year, that's nothing to sneeze at."

Shoppers believe that savings can be found on the Web -- nearly half of consumers, or 48 percent, said that the best values and deals are online, according to Forrester.

Exit strategy

"We're now getting into the business of helping retailers promote individual products more effectively on the major search engines," Best said. "Because we're integrating directly with the retailer's product catalog, we can incorporate huge amounts of information into the advertising campaigns that we're running."

Mercent measures its success by calculating things like "return on ad spend" and "cost per order" -- referring to the money that a company puts out to draw customers. Mercent says that it can increase return on ad spend from an industry average of 350 percent to 700 percent. With the help of personal marketing managers, the return jumps to above 900 percent.

One exit for Best, who's on his fourth company, would be a buyout from a major advertising agency that wants a deeper relationship with its retail clients.

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The line between digital ad agencies and technology platform companies is blurring -- as seen by Microsoft's May 2007 purchase of Seattle advertising firm aQuantive and its September 2007 purchase of Madison, Wis.-based Jellyfish.com, which combines social networking with comparative online shopping.

Mercent targets clients that already have robust e-commerce sites, which helps Mercent to be more successful in selling its services. "If a customer has a bad buying experience, no amount of advertising that you can spend will make up for those issues," Best said.